The Venezuelan Story: Revisiting the Conventional Wisdom

By Moises Naim, April 2001

"Practical men, who believe themselves to be quite exempt
from any intellectual influences, are usually the slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling their frenzy
from some academic scribbler of a few years back. I am sure that the power of
vested interests is vastly exaggerated compared with the gradual encroachment
of ideas…. But, soon or late, it is ideas, not vested interests, which
are dangerous for good or evil…."
- John Maynard Keynes. The General Theory of Employment, Interest, and Money,
London: 1936.

It has become something of a cliché to use the rise
to power of Venezuelan President Hugo Chávez as evidence of a brewing
backlash against globalization, American-style capitalism, corruption and poverty.
His fiery anti-globalization rhetoric, his strong alliance with Fidel Castro,
his outreach to Saddam Hussein and Muammar Ghaddafi, his anti-Americanism and
his sympathetic overtures to Colombia's guerrilla's and other insurgent groups
in Latin America have all captured the world's attention.2 The popularity among
Venezuelan voters of Chávez's anti-corruption, anti-globalization message
is seen as the concrete manifestation of a popular sentiment that echoes worldwide.

To many, the case of Venezuela also epitomizes the popular reaction to the prolonged,
exclusionary concentration of power among a small oligarchy of corrupt politicians
and their business allies. Mostly, however, the situation in Venezuela is cited
as an early warning signal of a worldwide backlash against the political ideas,
economic policies and international relations that dominated the 1990s, namely
liberal democracy, market reforms and globalization.

Yet, a closer look at the Venezuelan case unveils a rather different set of
lessons. For starters, in contrast to the common wisdom, the country has suffered
from insufficient integration with the rest of the world. Venezuela's problem
is not too much globalization but too little. Similarly, its current economic
woes and social deterioration are not the consequence of market reforms but
of the failure to reform its economy. Moreover, the disappearance of the party
system that dominated Venezuelan politics for more than four decades was not
a sudden, Soviet-like collapse resulting from an excessive concentration of
power in the hands of a small clique of politicians. Rather, it occurred as
a consequence of the decentralization of political and economic power that began
in the late 1980s. Chávez's ascendancy owes more to the long term dilution
of the political power once held by Acción Democrática (AD) and
COPEI, the two main political parties, than to their excessive concentration
of power during the 1990s. Also, while corruption was and still is rampant and
represents an almost insurmountable obstacle for progress, the country and especially
the poor have paid a steep price for the national obsession with the need to
eradicate it. The idea of corruption is as much of a constraint on Venezuela's
development as corruption is itself. Finally, in sharp contrast to Chávez's
rhetoric and the perceptions of some foreign observers, the policies of his
administration have deeply worsened social conditions, especially for the poor.
The probability that the Chávez era will result in more prosperity and
freedom for Venezuela's poor is low. The Chávez administration's failure
to deliver on its promises of a better life for the majority is bound to create
political instability that could lead to the erosion of civil liberties.

A country ravaged by poverty and rocked by political instability does not provide
the best base from which to launch a political message that would be readily
adopted by others abroad. Unfortunately, history shows that economic failure
and political repression have not always been obstacles to the international
popularity of the regimes that produce them. Thus, while unlikely, it is not
impossible that Chávez's ideas and approach will become a model for politicians
around the world anxiously seeking an alternative to the socioeconomic model
that became the standard in the 1990s.

Misreading Venezuela

One of the reasons why the Venezuelan experience has been so frequently misread
is that, for decades, Venezuela was too boring in the eyes of international
analysts. Foreign academics and journalists interested in the politics and economics
of underdevelopment did not see in Venezuela the sort of intellectual challenges
that make reputations and boost careers3. Indeed, Venezuela's stability paled
before the cataclysmic changes afflicting the rest of Latin America. While wars
raged in Central America, Venezuela was completely at peace. While military
dictators throughout the region stifled freedoms and "disappeared"
their opponents, Venezuela held peaceful, competitive and fair elections every
five years, with the opposition actually replacing the party in government.
While hyperinflation, high unemployment and irresponsible economic management
were the norm in most of Latin America, the oil-fueled Venezuelan economy seemed
to be immune to the economic catastrophes that beset its neighbors. While the
unimaginable poverty and hopelessness common in the region inspired countless
novels, doctoral dissertations and journalistic dispatches, even the Venezuelan
poor seemed to be better off than their Latin American counterparts.

It was not until the 1990s that Venezuela suddenly became interesting. The decade
saw a major attempt at market reforms, unprecedented street riots, repeated
military coup attempts, the impeachment and jailing of an elected president
and the indictment and exile of a former one. It also saw one of the world's
costliest banking crises, the meteoric rise to power of former coupster Lt.
Col. Hugo Chávez, and the adoption of a new constitution.

More significantly, the two political parties that were the building blocks
of Venezuelan democracy for more than five decades lost almost all of their
influence, as did the country's business, labor, and intellectual elites. Simultaneously,
a new set of hitherto unknown political actors and unprecedented rules of the
game emerged. Elections and referenda proliferated, yet thanks to President
Chávez's extraordinary popularity at the polls and the collapse of the
opposition, Venezuela began the twenty-first century with the highest concentration
of power in four decades4. The executive, the legislative, the judiciary and
most state and local governments, the central bank and the oil industry (which
provides more than 80 percent of the country's exports), have lost all autonomy
and are under the direct and active control of the President. Through a national
referendum in late 2000, President Chávez won the authority to reorganize
the Confederación de Trabajadores de Venezuela (CTV), the traditional
labor unions' body, and oust its leaders in the hope of replacing them with
some of his allies. The military has gained unprecedented influence, with officers
occupying the most critical positions in government. Military instruction is
now an obligatory subject in all high schools and history textbooks are being
rewritten5. Internationally, Cuba has now replaced the United States as the
closest ally of the Venezuelan government and saber rattling aimed at the neighboring
governments of Colombia and Guyana is a common occurrence.

In the late 1990s, Venezuela had another first: a massive exodus. Prior to then,
in contrast to most other Latin American and Caribbean countries, Venezuela
had not experienced any substantial emigration. Beginning in the second half
of the 1990s, an unprecedented proportion of the middle class sought refuge
abroad from a crime rate that had doubled since 1990, making Venezuela the world's
sixth most violent country and with an economic despair so deep that it swallowed
even the huge financial windfall generated by high oil prices. Fittingly, the
decade even brought with it a new name for the country, now known as The Bolivarian
Republic of Venezuela, as stipulated by the new Constitution approved in 1999.

The Venezuelan story: the common wisdom

A common description of Venezuela's path to its deeply troubled
present runs along the following lines: Venezuela is one of the wealthiest countries
among emerging markets, a country blessed with all kinds of riches - most notably,
huge petroleum reserves. This national wealth could have generated a richer
population and an advanced economy and society. Instead, a small elite managed
to grab most of the country's wealth. This concentration of political and economic
power resulted in a country with abominable poverty and outrageous inequality.
The situation was further complicated by the imposition in the early 1990s of
market reforms that benefited the private sector and foreign investors at the
expense of the poor. Not only were these reforms undertaken without consulting
the Venezuelan people, but they were imposed from above by the government of
Carlos Andrés Pérez in connivance with the IMF, the World Bank
and the United States. The neoliberal model came with its customary lethal dose
of fiscal austerity measures, which forced cuts in public budgets and subsidies
that benefited the poor. It also led to large-scale privatization that transferred
prized national assets to foreigners who then proceeded to eliminate thousands
of jobs, and to the liberalization of trade and foreign investment which made
the country more vulnerable to the vagaries of the international markets and
globalization. The combination of corruption, financial deregulation and globalization
created the conditions for the banking crisis that hit the country in the mid-1990s.
Again, this crisis hurt the middle class and the poor while enriching corrupt
bankers who then fled the country with their bounty.

Even before the banking crash, however, the Venezuelan people had already taken
to the streets in protest. In 1989, the country witnessed the worst street riots
in decades, with people protesting against the neoliberal reforms that while
may have reflected the Washington Consensus, were very far from enjoying a consensus
among Venezuelans. This widespread popular discontent was capitalized on by
then Lt. Col. Hugo Chávez, who together with three other fellow officers
led a coup against President Carlos Andrés Pérez. Although the
coup failed, it engendered a political upheaval that eventually led to the democratic
election of Chávez in 1998. He won the presidency with the enthusiastic
support of the majority of voters who were fed up with the brand of corrupt
democracy epitomized by Acción Democrática and COPEI, neoliberal
reforms that only benefited the wealthy and the rampant poverty unjustifiable
in a country so rich 6.

What's wrong with this picture?

It is true that Venezuela is a country with widespread poverty
and profound inequities, governed for too long by inept and corrupt politicians
who looted the country's riches in cahoots with greedy and equally corrupt economic
elites. But that is not the whole story. A closer examination of the assertions
commonly used to explain Venezuela's present plight and the factors that caused
it reveal a somewhat different picture.

Venezuela is a rich country

According to a survey conducted in August 2000, about 90 percent of Venezuelans
believe this assertion. In fact, 82 percent believe that Venezuela is "the
richest country in the world"7. It is also an assertion made in almost
everything that is written about Venezuela and a permanent feature in the national
discourse. The specific reference, of course, is to the country's oil wealth
and its mineral potential. The reality, however, is that despite occasional
and short-lived windfalls from oil revenues, the secular decline in the income
from oil combined with the booming needs of a growing population and the failure
to develop other economic activities, have long made Venezuela's oil insufficient
to make it a rich country. In 1974, oil contributed $1,540 per person to the
government and represented more than 80 percent of total government revenues.
Twenty years later it contributed just $200 per person and accounted for less
than 40 percent of total fiscal revenues8. In the last two decades, poverty
not wealth, has been the country's defining characteristic. Today, 68 percent
of Venezuelans live below the poverty line. No other country in Latin America,
with the exception of Chile under Allende in the early 1970's and again under
Pinochet in 1982, has experienced a greater and more rapid increase in poverty
than Venezuela9. In the past 20 years, critical poverty has increased threefold
and poverty in general has more than doubled. Since 1980, in Latin America only
Nicaragua, Haiti and Guyana have experienced a worse economic performance than
Venezuela. Thirty years ago Venezuela's per capita income was higher than that
of Japan and 20 years ago, it was roughly that of Spain. Until 1980, Venezuela
was the world's fastest growing economy in the 20th century. Today, its income
per capita in real terms is at the same level it was in 1962. Unemployment is
at 15 percent and 45 percent of all jobs are provided by the informal economy.
Real wages are 70 percent below what they were in 1980. The private sector has
also shrunk. Tens of thousands of small and medium-sized enterprises have gone
out of business while the majority of the once mighty economic groups have either
disappeared or survive at a fraction of their former size10. State-owned enterprises
in sectors where the country is purported to have some competitive advantage
-- like steel, aluminum or petrochemicals -- either survive due to huge government
subsidies or make a negligible contribution to the country's income or employment.
Venezuela lacks the human and physical infrastructure to make it a rich country
and its oil and mineral wealth have proven to be more of an obstruction than
an advantage in creating the conditions that would lead it into a more stable,
prosperous future. Venezuela's experience is an unequivocal confirmation of
the general rule that the abundance of natural resources induces parasitism
and stifles development11. It also confirms the assertion of Uruguayan writer
Eduardo Galeano, who noted that "Latin America's poverty is due to its
great wealth in natural resources12." Yet the politically explosive reality
is that 90 percent of Venezuelans continue to think that they live in a rich
country.

Corruption is the main cause of Venezuela's social
and economic problems.

This belief too, is deeply held by a large majority of Venezuelans.
If the country is rich and its wealth belongs to the state but the population
is poor, then somebody must have stolen that wealth. That "somebody"
is obviously "the politicians" and " the rich13." Thus,
corruption becomes the central theme in the national psyche, and mistrust in
government is a pervasive, and often justified attitude. The corollary is the
belief that a small elite has unduly appropriated the country's wealth at the
expense of the poor14. Thus the mantra --- tirelessly repeated, seldom scrutinized
and deeply ingrained -- is that in Venezuela, corruption is the main, if not
the only roadblock to prosperity. Once corruption is eliminated, the popular
expectation goes, the wealth that after all is already there, will spread almost
instantaneously and effortlessly throughout society. For years, politicians,
the media and the educational system have fed and amplified this expectation.
Thus, the eradication of corruption has become Venezuela's single most important
political promise, policy goal and developmental strategy. Meanwhile, corruption
has become pandemic in part thanks to policies that stimulate it by relying
on the discretion of largely unaccountable government officials and the enormous
role of the state. Paradoxically, the national obsession with corruption has
also made it more socially accepted because of the assumption that "everybody
is doing it" and impunity reigns. Also, corruption is often justified as
the only means of appropriating one's legitimate portion of the country's wealth,
a portion that would be stolen by others anyway15. For some, corruption is either
the quickest and safest way to make a fortune and for many, it is the only way
to make ends meet. Not surprisingly, moral condemnation of corruption has utterly
failed to curb it. Yet even after decades of failure, such condemnation continues
to be the only tool the country's leaders and voters seem to have in mind for
dealing with it.

The belief that corruption is the main culprit behind the country's
woes, is at the core of Venezuela's political and economic instability. The
national debate about poverty alleviation is reduced to one centered on corruption
eradication with scant attention paid to the policies and institutions needed
to create new wealth or improve the country's performance. Moral condemnation
and promises of ethical behavior find more support and are more readily accepted
than any legitimate policy proposals. The perception of honesty becomes the
only relevant credential in the recruitment and appointment of leaders; presumed
honesty overrides any concerns about lack of qualifications or technical competence
in the appointment of government officials. Proposals to create new wealth or
reform policies that stimulate corruption are seldom advanced or simply overwhelmed
by the anticorruption crusade.

For example, during his second administration in the mid-1990s,
Rafael Caldera appointed a "Presidential Commission to Combat Corruption"
without however, giving it much power or resources and after several years of
activity, ceased to function having achieved very little. President Caldera
also insisted on making corruption the central theme of the 1997 Ibero-American
Summit hosted by Venezuela despite the reluctance of other heads of state who
were more interested in discussing initiatives to further trade, investment
and economic integration among their countries. Yet alongside his anticorruption
campaign, Caldera reinstated price controls, foreign-exchange controls and a
variety of other government initiatives which obviously encouraged corruption.
His administration was also particularly ineffectual in bringing to justice
the many regulators and bankers responsible for the country's massive banking
crisis. Despite Caldera's repeated promises not to let a single act of corruption
go unpunished and his constant homilies about clean government, during his term
corruption was common and impunity continued to reign.

The reality is that while corruption undoubtedly was and continues
to be an important determinant of Venezuela's poverty and inequality, the fundamental
causes of its dismal socioeconomic performance lie elsewhere. Wrong policies,
woefully incompetent institutions, adverse international circumstances, incompetent
leadership, and the noxious effects of being an oil economy and society have
played a far more important role than corruption. True, many of the wrong policies,
poor institutions and nefarious leadership were either determined or sustained
by corruption. Yet corruption is a symptom, not a cause of the country's problems.
In the last 20 years, the single-minded focus on fighting corruption has either
undermined or altogether blocked efforts aimed at reforming policies and institutions,
adapting to changing international circumstances, or breaking the vicious circles
that have hindered the country's politics. In the same way that economic dominance
of oil stifled the development of other industries, the dominance of the corruption
issue in the national debate has stifled the development and emergence of ideas
about how to deal with the country's more pervasive problems.

Venezuela's turmoil is the consequence of the excessive
concentration of power by traditional elites

Excessive concentration of political and economic power was
certainly a problem in Venezuela's past. Yet in part as a reaction to such concentration
and the incompetence of those who held this power, the opposite was true during
the late 1980s and most of the 1990s.

In reality, the proliferation of new centers of power especially
at the local level, the growing influence of civic organizations and neighborhood
associations, the disappearance of party discipline, the weakening and even
the disappearance of politically influential business groups and organized labor,
and the balkanization of politics were all characteristics of Venezuela in the
1990s. Instability, gridlock and the incapacity to react to new domestic and
international realities, resulted from having too many weak political actors,
rather than too few powerful ones.

The demise of Venezuela's two-party system was largely due
to the inability of party leaders to react adequately to the changes brought
about by the end of the Cold War, low oil prices and by the process of political
decentralization that began in 1989. Acción Democrática and COPEI
once seemed invincible and used and abused their power without compunction.
Their large political base, widespread national organization and party discipline
with which the members of each party responded to the designs of the leadership,
made them powerful electoral machines. The glue that provided party cohesion
was not ideology but the promise of government favors and jobs. The basic and
often only mechanism used by the parties' leadership to ensure their members'
discipline was their ability to regulate access to the resources of the state,
rather than membership loyalty or doctrinaire commitment to the party line.
Once in government, the leaders and public officials of Acción Democrática
and COPEI managed the country by simply relying on the income from oil, their
electoral dominance and the geopolitical certitudes created by the superpower
rivalry. Eventually however, oil revenues dipped and the country found itself
heavily indebted. While the end of the Cold War and globalization changed the
international landscape, urbanization, immigration from neighboring countries
and demographic change altered the domestic landscape. Moreover, in 1989 direct
elections were instituted for state governors, mayors, and all local authorities
that had hitherto been unilaterally appointed by the President and the party
in power. Thus after the 1980s, the parties found themselves with less oil money
to disburse, mounting demands for social services and physical infrastructure
while chronic fiscal crises forced shrinkage in public expenditures. Acción
Democrática and COPEI also had to contend with long recessions, inflation,
currency devaluations, unemployment, capital flight and the banking crises that
replaced the economic stability and the steady, rapid growth to which the country
had been accustomed to16. In addition, political devolution ensured that the
reputations and personal charisma of the candidates to state and local governments
mattered more than the party's support. Under this new political dynamic, pleasing
local voters became far more important than pleasing party elders who had already
lost influence as a result of the fiscal crises that cut back their ability
to support candidates or reward party loyalty. Most importantly, Acción
Democrática and COPEI faced a furious electorate, nostalgic for a more
prosperous past and fed up with unfilled promises and constantly deteriorating
social conditions.

While many descriptions of Venezuelan politics in the 1990s
characterize it as a period when the two parties held a tight grip on power,
in reality, the decade saw massive electoral volatility with voters taking advantage
of any and all opportunities to punish those in power, regardless of party affiliation17.
Until the late 1990s when Hugo Chávez was elected, governments with weak
mandates had to deal with profound economic crises, mounting civil disorder,
two failed military coups, fractious politics and the proliferation of new centers
of political power as popular governors and mayors bid for national recognition
and influence18. Thus what for almost half a century had been an indispensable
requirement to win almost any election in Venezuela, namely the support of Acción
Democrática or COPEI, became a political scarlet letter in the 1990s.
Even Rafael Caldera the founder and leader of COPEI, abandoned his party in
order to run and win the Presidency for the second time in 1994, supported by
many of the small leftist groups against which he had battled all his life.

Neoliberal economic reforms and their harsh social costs wrought havoc
in Venezuelan politics and society.

The problem with this argument is that while every successive
government since the early 1980s has tried its hand at some kind of economic
reform, none have been able to sustain it. As Javier Corrales has noted, Venezuela
has experimented with heterodox stabilization (1985-1988), shock therapy (1989-1992),
gradualism (1996-1998), reforms by executive "special powers" (early
1980s, 1993-1994, 1998), reforms by negotiations with opposition parties (1996-1998),
stabilization through price controls (late 1980s and 1994-1996), deep trade
liberalization (1989-1993), concessions to the economic losers from trade liberalization
(1994-1998) and direct subsidies to vulnerable social sectors (1990-1992)19.
Policy experiments were usually abandoned before they could be fully implemented
or suffered from substantial distortions in the implementation process. Economic
reforms were consistently derailed by governments unable to shield them from
the country's balkanized, predatory politics, by incompetent and corrupt implementing
institutions, or by unexpected increases in oil prices that canceled any appetite
for reform. Not surprisingly, the Interamerican Development Bank classifies
Venezuela in the group of "slow reformers" among all nations in Latin
America and the Caribbean20. This reality was never an obstacle for politicians
who ran on electoral platforms whose essential message was the intolerable social
consequences of economic reforms.

Both Rafael Caldera (1994-1999) and Hugo Chávez made intensive use in
their victorious electoral campaigns of scathing condemnations of the "savage
capitalism" unleashed on the poor by the neoliberal reforms imposed by
Washington. As it has been amply documented, the Venezuelan experiment with
neoliberal reforms was modest, short-lived, clumsily executed and often reversed.
Despite the political destabilization they triggered, Venezuela's reforms fell
far short of the country's needs and of what most other countries in Latin America
implemented during the 1990s21.

Venezuela's tax system, labor and social security laws, health, education and
housing, state-owned enterprises including the oil and petrochemical industry,
agriculture and almost all of its public sector institutions, as well as most
regulatory frameworks, are in desperate need of reform and modernization. The
country -- especially its poor -- are victims of a decade of political gridlock
and narrow national debates that have made reform impossible.

Venezuela is a victim of globalization

If globalization is defined by the number, variety and intensity
of the links that a country has with the rest of the world, then in the 1990s,
the globalization of Venezuela's economy and society was neither rapid nor intense.
In fact, it lagged behind that of other large Latin American countries and even
smaller ones like Chile or the Dominican Republic. Despite the huge volume of
its international oil trade, Venezuela ranks only 36th in the A.T. Kearney/Foreign
Policy Magazine Globalization Index, which classifies a sample of 50 countries
according to their degree of interaction with the rest of the world22. Globalization
may not be the solution to the country's many ills but today's Venezuela has
experienced too little of it for it to be a major problem.

The production and exportation of oil and the international financial flows
associated with it have always constituted the most powerful link between Venezuela
and the rest of the world. That link retained its importance in the 1990s, a
decade that also brought with it new foreign investors in telecommunications,
banking and energy. The decade also saw a surge of trade and investment with
Colombia as well as the emergence of a Venezuelan diaspora abroad, creating
a new type of international linkage, mostly in the form of remittances. But
these new international links were few, weak and insufficient to compensate
for the decline or stagnation of other forms of international integration. The
number of Venezuelans studying abroad declined precipitously. In 1982, there
were 15,000 Venezuelan university students studying in the United States alone;
by 1999, that number had dropped to 5,133.

Many multinational corporations closed or shrank their Venezuelan subsidiaries,
new foreign investment in sectors other than energy and banking was very limited,
and the number of foreign tourists plummeted in the second half of the 1990s.
Aruba, a tiny island of the coast of Venezuela, attracts more than 1 million
tourists each year, the Dominican Republic more than 2 million and Mexico more
than 17 million. However, only 300,000 tourists visited Venezuela in 1999 and
2000. Venezuela ranks 36th among 50 countries in terms of foreign portfolio
investment, with total flows accounting for slightly over one percent of GDP
in the last five years. In the same period, international portfolio flows averaged
about 3 percent of the GDP in Argentina, 4.45 percent in Brazil, 3.47 percent
in Colombia and 9.44 percent in Chile24. cientific, cultural and artistic international
exchanges have also suffered as a result of Venezuela's fiscal crises, institutional
turmoil and a high crime rate that discourages international visitors. The consumption
of foreign books and magazines has also declined; at the end of the 1990s, it
ranked below other comparable countries in Latin America25. While in the rest
of the region and especially in the largest countries, the Internet is booming
in terms of users, servers, portals and e-commerce, Venezuela lags behind. It
ranks 40th in a sample of 50 countries in terms of Internet hosts per million
inhabitants. In 1998, it had 340 Internet hosts per million people while Argentina
had 1,827, Chile 2,030 and Colombia 39726. An illustrative example of Venezuela's
relatively weak international integration is that the collapse of its banking
system in the mid-1990s had almost no international repercussions. Similarly,
Venezuela's economy was barely touched by the Tequila effect that rippled through
all of Latin America's economies as a result of Mexico's financial crash.

Venezuela also experienced a decline in its international political integration.
Traditionally, the top and middle ranks of Acción Democrática
and COPEI were exposed to international thinking through these parties' membership
either in the international social democratic or Christian democratic movement.
The combination of these parties' declining interest in ideological debates,
with their torpid leadership and constant crises made their participation in
these bodies largely ceremonial thus making them and their policy initiatives
even less informed by ideas debated elsewhere. In short, globalization for Venezuela
has hitherto been mostly a source of missed opportunities rather than an important
source of problems.

Conclusion: What is next for Venezuela?

President Chávez is a highly charismatic and astute
politician. But charisma and astuteness alone cannot explain Chávez's
extraordinary ascendancy and his almost complete hegemony over Venezuela's politics.
What differentiates Hugo Chávez from his political rivals is not just
his uncanny ability to align his message with the most deeply held beliefs of
the vast majority of the population, but his enthusiastic willingness to tap
into collective anger and social resentments that other politicians failed to
see, refused to stoke, or more likely, had a vested interest in not exacerbating.
Chávez broke with the tradition of multiclass political parties and the
illusion of social harmony that prevailed in Venezuela for four decades. His
rhetoric is based on the incessant reiteration of the beliefs that are at the
core of the national self-diagnosis (a wealthy country looted by politicians)
and prescription (rooting out corruption shall make us all rich.) Moreover,
in contrast to other politicians, Chávez constantly caters to the emotional
needs of a deeply demoralized nation. He does so with an often inchoate but
very effective folksy mixture of Bolivarian sound-bites, Christianity, collectivist
utopianism, baseball and indigenous cosmogony, peppered with diatribes against
the oligarchy, neoliberalism, foreign conspiracies and globalization.

Thus, Chavez's personal attributes and the country's circumstances have converged
not just to make him the most popular president in recent history but to endow
his government with an immense political capital. To boot, the spike in oil
prices in 1999 and 2000 has boosted public finances and given his administration
ample room to maneuver. In each of these two years, Venezuela received additional
unexpected revenues from oil that were the equivalent of 11 percent of its GDP.
Unfortunately, until now there has been no evidence that President Chávez
will use this unprecedented opportunity to bring about reforms that will alleviate
poverty, reduce inequality or put Venezuela's economy on a sustainable and stable
path. This failure is caused less by ideology than by sheer incompetence. Alongside
Chávez's exceptionally shrewd political instincts and communication skills,
his other most salient characteristic is his lack of interest in the mechanics
of governing. Political leaders need not be good administrators. But to be successful,
political leaders need to be good at identifying and recruiting competent collaborators.
Even some of Chávez's close allies recognize that until now he has failed
to assemble a team with the skills and talents needed to tackle the difficult
challenges facing his government. International observers agree. A survey conducted
among top officials of multilateral organizations based in Washington, DC in
late 2000, ranks the Venezuelan cabinet as one the five worst in Latin America
and the Caribbean27.

This government incompetence has many causes, not all of them attributable to
President Chávez. He inherited a deeply damaged institutional setting
in which most public agencies could barely function. Venezuela has never had
a significant pool of career public managers. Chávez's political allies
come from the military and the left, and neither of these groups have had the
opportunity to govern before and therefore lack the necessary experience. But
even with these caveats in mind, Chávez's own inexperience and exaggerated
reliance on loyalty as the principal and often only, criterion for selecting
his main collaborators, have led to a disastrously incompetent team. The oil
company PDVSA which once was one of the world's most respected state-owned oil
enterprises, has been "reorganized" by Chávez's appointees
with dire consequences. After firing the second CEO he had appointed, Chávez
selected two army generals with no experience in the industry to run PDVSA and
its U.S. subsidiary, CITGO. About 80 percent of PDVSA's top managers have either
resigned or have been forced out. Whether in the organization of national elections
(a process the country had been successfully running for decades), the reconstruction
of urban areas devastated by massive mudslides in 1999, the formulation of a
credible economic plan, or the implementation of social programs, the Chávez
administration has demonstrated new depths of incompetence in a country where
public sector efficiency has always been very low.

Many political leaders have retained power despite governmental
incompetence or plummeting living standards and Chávez's penchant for
constant campaigning may result in heightened popular tolerance for his failures
at governing. But despite his current popularity, the failure of Chávez's
government to deliver on its promises and the continual deterioration of living
conditions, may erode his popularity and lead to a more volatile political situation.
Moreover, while enjoying extremely high levels of popularity, Chávez
also engenders an intense antagonism among a significant minority of Venezuelans,
making him the most polarizing political figure the country has seen in decades.

t is of course also possible that President Chávez may realize the importance
of running a more effective government and the need to assemble a far more competent
team. He may also part with his reluctance to complement his political reforms
with economic ones. Until now however, there has been no evidence that Chávez
has either the skills or the will to boost his administration's operational
capacity or to invest his political capital in the kind of economic reforms
he derides with such passion and sincerity (and which most Venezuelans also
reject.) Chávez has been very successful in accumulating power and he
may not recognize the need to change a strategy that has hitherto served him
well.

The risk is that the government's poor performance may be aggravated by dwindling
oil revenues, which in turn, may lead to social and political turmoil. How much
President Chávez will feel constrained by the democratic rules of the
game when dealing with challenges to his authority, is an open question. A senior
official in the Chávez administration said in a December of 2000 interview
that "the current climate of civil liberties may not survive the strains
in the passionate love affair that the Venezuelan people have had with Hugo
Chávez at the end of the 20th century28." This concern was echoed
by Brazilian President Fernando Henrique Cardoso, who described Hugo Chávez
as an "unconscious authoritarian29."

Another much feared possibility is that in the face of dwindling popularity
and mounting disaffection, President Chávez may exacerbate international
conflicts, especially with Colombia30. If fears about Chávez's authoritarian
proclivities are proven right and he does become just another third world dictator,
then it would be clear that rather than being a harbinger of the future, he
is just a relic of the past-unless of course one takes the view that populist
authoritarianism is the wave of the future among the world's developing countries.

Whatever Venezuela's political evolution may turn out to be, its leaders will
have to persuade the Venezuelan people to abandon the misconceptions that have
undermined the country's progress thus far. Venezuelans need to be persuaded
that oil is an insufficient and volatile source of revenues, not the guarantee
of wealth for everyone. They must also realize that, given what they know about
the rampant corruption and ruinous ineffectiveness of almost all public sector
institutions, it is time to abandon the hope that the state can reliably perform
too many tasks. Reducing the scope of the state is the best route to strengthening
it and restoring its capacity to perform the critical functions that its chronic
overburdening has long prevented it from carrying out. They should also be convinced
that economic reforms that put the country on a more solid footing are not the
cause of poverty, but its only long-term remedy.

Venezuelan leaders should also stress that corruption will
not be rooted out by appealing to the same judicial threats and moral appeals
that have failed to work for four decades, but that it will only be alleviated
by reducing the incentives and opportunities for it. Finally, leaders should
realize that despite the cosmopolitan look of Venezuela's major cities, the
fashionable appearance of its middle class, and the volume of its oil trade,
the country's global integration is limited. The great majority of Venezuelans,
including important segments of its elite, live in relative international isolation
as a result of the country's weak economic, political, cultural, scientific
and technological ties with other countries. Economic reforms, broader international
integration and a smaller, more focused role for the state are not panaceas
for Venezuela's immense problems. But they are concrete steps towards a more
hopeful and sustainable future.

It is tempting to dismiss the Venezuelan experience as simply
one more example of the many kleptocracies that have flourished in Africa or
the former Soviet Union. It is certainly correct to conclude that successive
Venezuelan governments depleted both the country's coffers and its commitment
to democracy, thus paving the way for an army officer and his allies to take
over. This view however, leaves out many subtle and interesting lessons offered
from the Venezuelan experience. In particular, it ignores the damaging impact
of the national obsession with escaping the appearance, if not the reality,
of kleptocracy. As understandable as the popular quest for probity and honesty
may seem, it risks shackling the country to misconceptions that limit the adoption
of better policies. Such a quest blinds Venezuelans to the fact that much of
their hardships are due to the deficiencies of their leaders' ideas, rather
than simply a lack of morality.

In spite of having been writen just over two years
ago, the basic arguments and conclusions of this article are still valid.
--------------------------------------------------------------------------------

1- Editor, Foreign Policy Magazine and Venezuela's Minister
of Trade and Industry from 1989 to 1990. Thanks to Robert Bottome, Thomas Carothers,
Javier Corrales, James Gibney, Janet Kelly, Jose Malave, Minxin Pei, Michael
Penfold, Ricardo Penfold and Marina Ottaway for their useful comments. The usual
disclaimers apply. A shorter version of this essay appears in the Journal of
Democracy April 2000, Volume 12, No. 2.

2- A Lexis/Nexis search shows that Hugo Chávez was the
Venezuelan individual most cited by the international media from 1989 to 2000.

13- See Anibal Romero, "Rearranging the Deck Chairs in
the Titanic: The Agony of Democracy in Venezuela" Latin American Research
Review Vol. 32 No. 1, 1997 pp. 7-36.

14- Paradoxically, while inequality is certainly an important
reality in Venezuela, during the 1990s, Venezuela's average Gini Coefficient
was lower than the average for Latin America. Only three countries (Uruguay,
Costa Rica and Peru) in the region had a better income distribution than Venezuela.
IDB Economic and Social Progress in Latin America: 2000 Report (Washington DC;
IDB, 2000) Page 6. The more politically relevant statistic however is that Venezuela
experienced one of the world's largest increases in inequality during the 1990s.
See Miguel Szekeli and Marianne Hilgert "The 1990s in Latin America: Another
decade of persistent inequality" Working Paper, IDB 2000.

15- This attitude also underlies the explosion in criminality
that has devastated the country. One of President Chávez's most commonly
used lines of attack against the political order he's dismantling is that most
individual wealth was received from the state, through corruption and at the
expense of the poor. Chávez has also stressed that he understands why
the poor would resort to stealing and that he himself would do so if he had
to live as most Venezuelans do. The collapse of police capabilities and of the
penal system have also made criminal activity less risky. Thus in today's Venezuela,
crime pays. Social legitimacy and acceptability, political tolerance, legal
impunity and the dearth of other alternatives make it a low cost, high yield,
and low risk occupation. In 2000, Venezuela ranked as the 6th most violent country
in the world with 25.1 crimes-leading-to-violent-death per 100,000 population.
The crime rate has doubled since 1990. See Veneconomia Weekly Vol. 18 No.45,
October 11, 2000.

16- See Javier Corrales "Reform-Lagging States and the
Question of Devaluation: Venezuela's response to the exogenous shocks of 1997-1998"
in Carol Wise and Riordan Roett's Exchange Rate Politics in Latin America (Washington,
D.C.; Brookings Institution, 2000).

18- For an excellent analysis of the political and economic
consequences of Venezuela's political decentralization see Michael Penfold-Becerra:
"Federalism and Institutional Change in Venezuela" in
Edward Gibson, ed.: Representing Regions: Federalism and Territorial Politics
in Latin America (Johns Hopkins University Press, forthcoming) as well as Jose
Molina and Carmen Perez "Evolution of the Party System in Venezuela, 1946-1993,"
Journal of Interamerican Studies and World Affairs; Vol. 40 No. 2, Fall 1998
pp. 1-25.

21- See IDB, Economic and Social Progress in Latin America:
1998 Report (Washington DC, IDB, 1998); See also See Javier Corrales "Reform-Lagging
States and the Question of Devaluation: Venezuela's response to the exogenous
shocks of 1997-1998" in Carol Wise and Riordan Roett's Exchange Rate Politics
in Latin America (Washington, D.C.; Brookings Institution, 2000)

27- Personal and phone interviews conducted by the author with
14 officials of Washington-based multilateral organizations. December 2000 and
January 2001. The question was: How do you rank the current Venezuelan cabinet
in comparison to all others in Latin America in terms of its professional quality:
Among the best five? Among the best ten? Among the best fifteen? Among of the
worse ten? Among the worst five? All the respondents selected the "Among
the worst five" option.

28- Author's interview; Caracas, December 19, 2000

29- Interview in the Brazilian magazine Epoca March 5, 2000.

30- This old trick in the hat of all embattled presidents is
actually welcomed by Chávez's more extreme opponents who hope that a
self-inflicted international debacle may lead to Chávez's political demise.
They call it the Galtieri scenario for the head of the Argentinean military
Junta who lost a disastrous war against England thus opening the door for the
reemergence of democratic rule in Argentina.